How Warren Buffett Writes His Shareholder Letter

Warren Buffett’s annual letters to Berkshire Hathaway shareholders have taken on a canonical quality in the eyes of investors over the past few decades. Each time the new one comes out, a million people or more devour it for the latest kernels of wisdom Mr. Buffett’s earned over more than half a century in the markets.

This past month, the Oracle visited the University of Maryland to sit down with a group of MBA students from eight universities and take questions. Here’s his response when asked about his shareholder letter-writing process:

What is the process you follow in writing the annual shareholders letter? How do you decide what you’re going to write about?

WB: I finished the 2013 letter already, but I will send it out on Feb 28. I already know what I’m going to say, just have to fill in some numbers and send it off.
I try to think of my shareholders as my partners. I try to think of the information I would want them to send me if they were running the place, and I was the shareholder. What would I want to know? This is what I tell them. In my first draft, I address it to my sisters who don’t know a lot about finance. “Dear sisters”- I explain to them what they would want to know in their position. I also like to write one section that is a general teaching lesson that doesn’t directly apply to Berkshire. This year 2600 words (out of 11,500) are thoughts about investing. I’m talking to all people thinking about investing and how they should go about it. I take one subject and just write a chapter on this, annually. Some people are interested, some are not. If they’re going to have most of their money with me, I like to talk to them as if they are in the room with me — economic principles of BRK – so people know what we are all about.

In 1956 I bought a ledger for $0.49, two pieces of paper for a partnership document but didn’t worry about the partnership agreement. I just explained the ground rules in about half a page: This is what I can do, this is what I can’t do, this is how I intend to go about it, and this is how I measure my success. If this looks good to you, then buy in. If you don’t want to buy in, then don’t – we can still be friends. These ground rules are in the back of the Berkshire Hathaway report tailored to investors. In our ground rules, though our management is corporate our attitude is partnership. We consider you as partners. You need to have common ground, just like a marriage. It would be crazy to get married when you differ on important points. The annual shareholders report is ready now. BRK has unusual shareholders, many of whom have 80% of their net worth in BRK. I have almost 100% of my net worth in BRK. But if the market goes down 50% we might rewrite it (laughter).